Customers Won't Pay? How to Choose a Collection Agency

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Collecting debt on delinquent accounts can be difficult, especially if your debtors move without providing a forwarding address. The longer your accounts remain delinquent, the less likely you are to recover the debt. In situations like these, hiring a debt collector to recover funds on your behalf may be your best option.

Collection agencies, not to be confused with debt buyers, are most commonly paid a percentage of any outstanding funds they recover on your accounts, but they don't own the debt. When they collect a payment, they hand the money over to you, minus a certain percentage in fees. A standard collection agency will offer services, such as formal demand letters, phone calls and emails; however, top debt collection agencies provide additional services, like skip tracing, litigation and online portal access.

When comparing collection agencies, it is important to analyze more than just the services offered. An agency's reputation for how it treats your debtors is equally important, since they are representing your business. There are strict laws surrounding collection efforts. Any reputable agency will follow those laws and treat your debtors with dignity and respect.

When looking to hire a collection agency for your small business, consider the collection type (commercial collections, consumer, etc.), industries and locations they serve. Not every agency will be a good fit for your business. Below you can learn more about the agencies we selected, the features of each one, whether it services commercial collections (B2B), consumer collections (B2C), or a combination of the two.

Editor's Note: Looking for a collection agency for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have one of our vendor partners contact you about your needs.

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Collection Agency Best Picks

Best Collection Agency for Small Business: Summit Account Resolution

Summit Account Resolution (Summit A•R) is our choice as the best collection agency for small business because of its customized approaches, transparent pricing structure and extensive services available. It is an ideal collection agency for any small business seeking repayment on accounts that have been delinquent for up to two years.

Summit A•R is great for any small business, as it provides collection services for both consumer (B2C) and commercial (B2B) collections. They collect within a range of industries throughout the United States, including medical, dental, employee reimbursement, consumer and court-ordered obligation, child support, spousal support and all commercial industries. If you are seeking collections in Hawaii, Nevada, New Mexico, New York, and North Carolina, you'll need to speak with a Summit A•R rep. These states have specific laws that can complicate the debt collection process.

This agency charges on a contingency fee basis. Collection rates vary depending on collection type, size, and age. They average between 7.5 and 50% for each account, with consumer rates typically around 35% and commercial rates, which are slightly cheaper. The agency requires a $50 minimum debt to be collected on each account. In addition to standard collection services, Summit A•R provides accounts receivable consulting, skip tracing, accounts receivable recovery assistance and litigation.

Summit A•R has an online portal on its website, and when you log in, you have immediate access to your delinquent accounts. You can check an up-to-date status of the accounts you've submitted, and you can submit new accounts to Summit A•R. When you sign on with Summit A•R, you receive an account manager as your dedicated point of contact. This agent will answer any questions you have, as well as treat your debtors with respect and dignity.

Best B2B Collection Agency: Prestige Services Inc.

Prestige Services Inc. (PSI) is our choice as the best B2B collection agency due to its extensive features and excellent customer service. It provides standard commercial collection agency features – precollections, demand letters, final notice forms – as well as advanced techniques like skip tracing, litigation and an online portal.

Because commercial and consumer debt collections are typically handled differently, it is ideal to use an agency that specializes in one of these areas, rather than both. PSI specializes in B2B collections, and it collects debt repayments throughout the United States, Canada and Mexico.

PSI requires a $200 minimum collection balance and charges on a contingency fee basis. The agency's rates are generally 5 to 10% lower than many competing agencies. For accounts with a balance of $200 to $3,000, PSI's rate is 25 percent. For accounts with a balance ranging from $3,000.01 to $20,000, the rate is 22 percent. Rates are negotiable, and volume discounts can also be applied. Litigation fees are extra and can go up to 40 percent. PSI provides timely, efficient collection services; according to the agency, they typically reach a resolution with the debtor within the first 45 days after collections commence. After your debtor pays PSI, the agency releases an end-of-month remittance check to you, complete with payment details.

On its website, PSI features two customer portal options – the placement portal and the status portal. Within the placement portal, you can get a free quote on a past-due account you'd like to turn over to PSI, and you can submit new accounts to PSI. The status portal provides live status updates for each account you've submitted. Within each status update, PSI includes detailed notes about the interactions between the collection agency and the debtor.

Best B2C Collection Agency: Rozlin Financial Group Inc.

Rozlin Financial Group Inc. (RFGI) is our choice as the best B2C collection agency. It offers all the necessary features and services a business needs to recover payment on delinquent B2C accounts. It provides its clients with online account access (with up-to-date status reports on its collection efforts), great reporting and customized approaches to debt recovery. Additionally, it uses advanced skip-tracing techniques to locate debtors, and as a last resort, it can forward on your claim to attorneys for legal action.

RFGI's fees are based on how much money they recover from the debtor. If they are unable to collect on an account, there is no charge. RFGI's requires a minimum of five accounts. To request a price quote, you can call RFGI toll free, or you can complete a form on the agency's website to have a representative contact you.

RFGI collection agents are required to participate in active training to stay up to date on the best collection techniques. This allows them to provide a tailored approach for each of your consumer collection accounts while complying with the latest laws and regulations.

Debtors can pay RFGI via check, credit card or through an online payment portal. Once RFGI receives a payment, it mails you a check. If your debtor pays monthly, RFGI will send you a remittance check each month. If your account requires legal action, RFGI can refer your account to the appropriate parties for litigation.

When to Hire a Collection Agency

When it comes to collecting outstanding debt, generally, the more time that passes, the lower the chance you have of recouping the money. Most companies send past-due accounts to a collection agency when they are between 90 and 120 days past due. If you wait longer than 120 days, you are far less likely to ever recover the debt.

It's time to start thinking about hiring a reputable collection agency when:

New customers do not respond to your first attempt to collect the debt. When you do not have a payment history with the customer, there's a greater chance they will refuse to pay.

You've agreed to a payment plan, but the customer doesn't follow through. Customers who still won't pay after you've both worked out a payment plan are unlikely to pay what they owe you.

A customer completely denies responsibility for the debt. Unless you enlist the help of a collection agency, these debts are rarely recovered.

The customer makes unfounded complaints about your business, product or service as an excuse not to pay. Most of the time, these complaints are just an excuse to get out of paying the debt.

The customer has a history of financial irresponsibility.

If you have a delinquent account that matches any of these descriptions, there are certain steps you can take before hiring a collection agency. First, reach out to your debtor multiple times, in a polite but firm manner. If phone calls and emails don't work, send a formal demand for payment letter. This letter details the payment that needs to be met and is often required if you eventually file suit against the debtor.

If you have exhausted all of your options and aren't getting anywhere with a delinquent customer on your own, further attempts to collect the debt are better left to a professional agency that knows the appropriate way to collect debts while adhering to the Fair Debt Collection Practices Act. They may recover at least a portion of what you're owed, if not all of it.

Choosing a Collection Agency

There are more than 4,000 collection agencies in the United States alone. Some handle consumer debt collection (B2C), while others specialize in commercial debt collection (B2B). Each collection type is investigated differently; however, many agencies handle both.

Determine if they fit your needs

Not all agencies will fit your specific business needs; it is important to carefully assess which agencies will. Some agencies cater to businesses of certain sizes (small business versus an enterprise), some focus on a specific region (local, national or international). Beyond basic collection efforts, some agencies provide additional services, such as billing, precollections, credit reporting and account receivables consulting. It is important to identify if an agency is well-suited for your business and will provide all the features you need.

Determine if they specialize in your industry

Some collection agencies, primarily consumer agencies, specialize in specific industries, such as healthcare, insurance, utilities, credit cards, mortgages or auto loans, while others service a range of industries. If you provide a product or service within a very specific industry, the experience a collection agency has in that industry can be the tie-breaker between two reputable collection agencies you are considering hiring.

It is important to hire an agency with an established track record of successful collections in your industry. The agency should be familiar with the terminology in your industry as well as state and federal rules and regulations governing your industry, if applicable. If you're in the healthcare field, for example, the collection agency you hire must be well versed in insurance requirements, medical terms and important laws like HIPAA.

Find a Reputable Agency

Here are some tips to help you pinpoint a reputable, effective agency.

Ask for referrals from your attorney, accountant or trusted business associates in your industry. Go beyond just asking for agency names. Find out why the person is recommending that particular agency. Does it have a high success rate? Are they known for their strict adherence to laws?

Search the directory of the Association of Credit and Collection Professionals (ACA) to find a member agency licensed in your city or state. ACA International is a nonprofit that establishes ethical standards for the industry and requires that its members adhere to them.

Check the Better Business Bureau (BBB) for ratings on the collection agency you are considering. One or two complaints can be a fluke; multiple complaints are a red flag.

Make sure the company is state licensed and/or bonded, if applicable. Many states require one or both.

Find out where the agency is licensed. If you only do business locally, an agency that is licensed only in your state is fine. If you have customers across the U.S., find an agency licensed in all applicable states.

Determine whether the company is insured. Errors and omissions liability insurance (E&O) is often a sign of a reputable agency. E&O insurance provides coverage for claims brought by consumers for improper conduct, such as harassment. In many cases, that coverage extends to your business. While E&O insurance is not required by federal or state laws, it's a sign of good faith.

Visit the collection agency. Before you commit, sit down with the collection agency to learn more about them. There's a lot you can tell about whether the agency is reputable by talking to them and how they handle delinquent accounts. Ask to see proof of results: What percentage of debts have they successfully collected? Find out which tactics and technologies the agency uses in its collection efforts. Ask for references and check them. If the company doesn't seem like a good fit, trust your instincts and move on.

Don't worry too much about size. A large, national firm is not necessarily a better fit than a small, local one. It depends on your needs, the agency's strengths, its reputation and its track record.

Properly trained collectors are crucial. Agents should be experienced and skilled negotiators. Find out if the collection agency's employees receive regular education and training. Courses are available through ACA and other membership organizations. If possible, arrange to listen in on a few calls before committing to a collection agency.

Fair Debt Collection Practices Act

When choosing a collection agency, integrity and reputation are among the most important considerations. A company that uses dubious methods to collect debt damages your reputation, too, costing you current and future customers. In worst-case scenarios, your company can face litigation for a collection agency's illegal practices, even if you were not aware of its actions.

All consumer collection agencies are required to comply with a federal law regulating the industry known as the Fair Debt Collection Practices Act (FDCPA). It's important you know the law so you can hire a collection agency that abides by its precepts and avoids FDCPA violations.

Under FDCPA, collection agencies:

Cannot call debtors before 8 a.m. and after 9 p.m., unless the debtor has agreed to it beforehand

Cannot call at inconvenient places. For example, if the debtor has requested to not receive calls at work, collectors can no longer call a debtor's employer

Must honor letters requesting that contact concerning a debt cease

Must contact a debtor's attorney if the debtor has one

Cannot contact third parties (including family and friends) more than once. They can only contact the third party to find a way to contact the debtor, and they can't state the consumer owes debt

Must send the debtor validation and verification of debt

Cannot threaten harm or violence

Cannot threaten garnishment, seizure of property or other legal action unless the agency is intending to take action (and is legally allowed to take that action)

Cannot make false statements, such as that the debtor has committed a crime or that the collector is an attorney

Cannot send documents that look like court or legal documents but aren't

FDCPA only applies to consumer debt, not debt that someone accrued while running a business.

Many, but not all, states require collection agencies to be licensed and/or bonded. Always find out what your state requires and check whether the collection agency you're considering is compliant. While membership to ACA International is not mandatory, it does mean the agency has been vetted.

If this is a commercial or B2B debt, look for a collection agency certified by the Commercial Law League of America (CLLA) and one that is a member of the Commercial Collection Agency Association (CCAA). Like ACA International, both require commercial collection agencies to follow a strict code of ethics, proper accounting principles and to be bonded.

Aside from the lack of proper licenses and certifications, another red flag is whether the service has been sued. It's usually easy to uncover past (or current) lawsuits with a simple Google search.

Debt Collection Fee Structures

There are many factors that determine collection agency fees, including the size of the debt portfolio, the type of work required to collect the debt, the age of the account, the agency's experience and more.

There are two main types of fee structures. The most common type – a contingency fee – is a form of tiered pricing, that only applies when an agency collects. The less-common type of fee structure is a fixed rate, or fixed fee, that is charged upfront.

Contingency Fees

Contingency fees are charged as a percentage of collected debt, and they are typically negotiable, especially for accounts that have a significant balance that is owed. Contingency fees, on average, range anywhere from 20 to 50% depending on the size of the debt and the age of the delinquent account. Some agencies display their rates on their websites. Most, however, require you to contact the firm for an exact rate on your accounts.

The lowest rate doesn't always mean the best results. Pay attention to the return rate. If you pay a 25% fee on a $1,000 debt and the agency collects only $300, your return is $225. However, if you pay a 35% return rate and the agency collects $500, you reclaim $325. Talk to agencies but also do your due diligence (checking references, looking up customer reviews, etc.) to see how well an agency performs in recouping debts and its return rate.

Fixed Fees

Although it's not as common, some agencies charge a fixed fee for collections. The fee is paid upfront, and you keep 100 percent of what funds the agency recoups for you. An agency will typically only agree to do this if the debt is less than 90 days old – otherwise known as precollection – or just over 90 days old. This rate structure is rare, but it can save you money on collection fees if you are seeking collection on newly delinquent accounts.

When assessing which fee structure is right for you, carefully consider the age, volume and breadth of your accounts. If you ask for a quote over the phone, request that the agent send you an email of the quote for future reference. Keep in mind, too, that many agents may negotiate on pricing if you ask.

How Collection Agencies Use Technology to Recover Money

The best collection agencies utilize a number of tools, such as technologies, partnerships with other agencies and attorneys, and a highly skilled and trained staff, to recover money owed to your business.

Here's more about some of the tech they use to locate debtors and recoup money owed to you:

Skip-tracing services locate customers who are hard to find. Typically, agencies consult databases that allow the collection firm to find debtors who have moved without leaving a forwarding address. Many agencies offer this service, but some provide advanced features that allow them to find even the most hard-to-locate people. If an agency does not offer skip tracing, it will have a much harder time finding debtors who have moved or fled the state, and the chance of you recovering any money is very slim.

Today's tech goes beyond phone calls and snail-mail letters; collection firms work with debtors to negotiate payments. These strategies appeal to younger debtors and those who are uncomfortable discussing their payment obligation over the phone.

Algorithm-based collections tailor collection strategies based on the debtor. Collection agencies are able to build a profile to better understand the debtor and the right way to resolve the debt. Often, email is the first form of communication versus a formal letter.

Online access allows you to quickly submit new delinquent accounts, monitor the status of current accounts, communicate with the agency and run reports on the status of your collections. This is especially helpful if you have multiple past-due accounts that need to be collected on and where time is of the essence.

How to Work with Your Collection Agency

You want a collection agency that is a partner, not just a contractor. To that end, you'll need to invest effort into managing the relationship. The agency should be willing to meet face to face periodically to review the status of your accounts, and they should promptly return phone calls and emails, ideally within one business day.

There's work to do on your end as well. To boost your chances of recovery money rightfully owed to you, provide the agency with as much information about the debtors as possible, including:

Names, addresses and telephone numbers

Cell phone numbers and email addresses

Names of the debtor's spouse, friends, relatives and neighbors

Information about whether the debtor has responded to your debt collection efforts, and if so, how

Details about the purchase or transaction, including the date

Any paperwork related to the transaction, including contracts and credit applications

Nicknames, maiden names and aliases

The more information the agency has, the more money you collect.

Vendor List

Here is a full list of collection agencies and a summary of what each company claims to offer. This alphabetical list also includes our best picks, which are marked with badges.

Account Management Systems – AMS collects commercial debts. Based out of Tampa Bay, this debt collection service collects debts nationwide, charges no upfront or sign-up fees, and only collects money if they recoup your debts. https://www.amscollects.com/

Atradius Collections – Although Atradius Collections is primarily a UK-based commercial collection agency, it also has a base in the United States. It specializes in multinational accounts and offers collection services to over 30 countries. It has a very high return rate. To get a free quote on pricing, you can access their online portal. https://agora.atradiuscollections.com/us/

Aspen National Collections – Aspen National Collections works with timeshare and education industries, as well as municipalities and utilities, to collect outstanding debts. It creates debt collection strategies tailored to each client it works with. This agency's website has an online portal so clients can log in and monitor the progress of their past-due accounts. http://aspennational.com/collections/

Benjamin Michael & AssociatesInc. – Benjamin Michael & Associates is based in New York City. The firm utilizes several techniques, such as demand letters, skip tracing, and reports on demand, to help you recover debt from delinquent accounts. http://www.benjaminmichaelassociates.com/

Credit Management Company – Founded in 1966, Credit Management Company recovers debts for government, healthcare, higher education, financial services and commercial businesses. It has an online system for debtors to make payments. In addition to collection services, it offers claims resolution services. http://www.creditmanagementcompany.com/

Hunter Warfield – This collection agency provides services to a variety of industries, including property management, medical offices, financial services and commercial collections. This collection agency is best suited for businesses that provide credit on goods or services, or have extended, relationship-based contracts. https://www.hunterwarfield.com/

Martini, Hughes & Grossman – Martini, Hughes & Grossman offers customized approaches to debt collection. It has in-house legal advisors, skip-tracing technology, it sends status reports bimonthly, and it collects both B2B and B2C accounts. It can track down debt nationally and internationally and is accredited with the Better Business Bureau. http://mhg.bz/

National Service Bureau – National Service Bureau serves both B2B and B2C collections. It offers precollections, third-party collections, letter services, litigation and skip tracing to a variety of industries. These industries include commercial, education, financial, insurance, medical, telecom and utilities. http://nsbi.net

*Prestige Services Inc. – PSI is our choice for the best B2B collection agency. It provides commercial collection services throughout the United States, Mexico and Canada. It provides professional skip tracing to help locate debtors, and it can investigate businesses. If the debtor won't pay even after all of PSI's efforts, the agency can forward the account to an attorney in the debtor's area. https://psicollect.com/

Rapid Recovery Solutions – Rapid Recovery Solutions provides collection services both nationally and internationally. It caters towards all commercial accounts and medical billing accounts by using a four-step system to collect funds from debtors. http://rapidrecoverysolutions.com/

Revenue Assurance Partners – This solution customizes its service to your business. You can outsource as many or as few internal processes as you want. The company states it has over 50 years of experience collecting past-due accounts. It also provides auditing, reporting, legal forwarding and other collection services. https://rapcollect.com/

Rocket Receivables – This debt recovery agency supports collections for small- and mid-sized businesses. It focuses primarily on industries including healthcare, education, professional services, residential, commercial, contracted services, trades and general retail. It offers fixed-fee pricing for newly-delinquent accounts, as well as contingency pricing for older accounts. https://www.rocketreceivables.com/

Ross, Stuart & Dawson Inc. – This commercial collection agency provides collection services to businesses throughout the United States. It can help you with follow-up letters and statements, soft calls, credit reports and portfolio liquidation services. http://rsdcollects.com/

*Rozlin Financial Group Inc. – RFGI is our choice for the best B2C collection agency. It uses a tailored approach to connect with debtors, including phone, mail, email and online chat. It offers collection services for a variety of industries, including dental and medical offices, hospitals, schools, property management companies, utilities, retailers and lending service companies (e.g., credit cards, auto loans, mortgages). It is a Better Business Bureau-accredited agency. https://www.rfgionline.com/

*Summit Account Resolution – This agency is our pick as the best collection agency for small businesses, and it serves both consumer and commercial collections. It offers an online portal, a skip-tracing department and litigation services. Once you sign up with this provider, you receive an account manager who is available to answer all your questions. https://www.summitcollects.com/

The Kaplan Group – The Kaplan Group is a commercial collection agency that specializes in international, judgement and large-balance claims. It requires a minimum of $1,000 to be collected on and has low contingency rates. It provides advanced collection services, such as background investigations, credit analysis, skip tracing, legal services and payment plans. https://www.kaplancollectionagency.com/

TSI – This agency provides collection services for commercial, education, financial, government and healthcare industries for both SMBs and enterprises. It provides basic collection services like demand letters, calls, and payment reminders, as well as more advanced services, such as first- and third-party accounts receivable management options and skip tracing. https://www.tsico.com/

Tucker, Albin &Associates – This B2B collection agency has a network of over 500 private investigators and attorneys to help with debt collections across the globe. It uses a tailored approach to collect on commercial debts. http://tuckeralbin.com/

VeriCore – This international collection agency focuses on recovery, reporting and remittance. It provides a tailored approach to each collection account, ranging from soft to assertive. https://www.vericore.com/indexS.htm

Your Collection Solution – This collection agency collects consumer and commercial debts. It has a contingency-based fee structure. Though headquartered in Florida, Your Collection Solution can work to recoup debt in the U.S. and in several other countries. The company states its management team has over 30 years of experience in the industry. https://www.ycscollects.com/

Editor's Note: Looking for a collection agency for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have one of our vendor partners contact you about your needs.

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Skye Schooley

Skye Schooley is an Arizona native, based in New York City. After receiving a business communication degree from Arizona State University, she spent nearly three years living in four states and backpacking through 16 countries. During her travels, Skye began her blog, which you can find at www.skyeschooley.com. She finally settled down in the northeast, writing for Business.com and Business News Daily. She primarily contributes articles about business technology and the workplace, and reviews remote PC access software and collection agencies.